An initial public offering of Rs 4,633 crore from Indian Railways Finance Corporation, a subsidiary of Indian Railways, a dedicated market credit subsidiary of Indian Railways, will open for subscription on January 18.
The public issue of 1,78,20,69,000 equity shares includes a new issue of 1,18,80,46,000 equity shares and an offer to sell 59,40,23,000 equity shares of the President of India. Shares of Rs 50 lakh are reserved for eligible employees.
The issue is open until January 20th and for this the Price Band is priced at Rs 25-26 per share.
Many brokers have thrown this thing into consideration, with an attractive valuation, low-risk business model, low credit risk, healthy income ratios, the highest allocation of capital expenditure to Indian Railways in the Union Budget 2020 and the strategic role of Indian Railways. Financial growth.
“At the top of the issue price, IRFC’s price is 1x FY20P / ABV and about 0.9xH1FY21P / ABV, which is an attractive valuation among its peers. We recommend subscribing. NII 20 percent, pre-provision operating profit 19 percent and assets Under-management (AUM) is 32 percent, ”said KR Choksay.
“The current business model and pricing structure is a low-risk model. Low liquidity and credit risk are a positive differentiator. We do not expect its position or model to change adversely,” the broker added.
“Although its business has a higher concentration risk, credit risk, liquidity risk and sovereign support are more favorable than its state-owned peers. Its rating is AAA, which is higher than peers,” said KR.
For any NBFC, credit rating is the most important and the company gets the highest credit rating from ICRA, Crisil and Care to Indian providers. The company has a high credit rating from CRISIL – AAA and A1 +, ICRA – AAA and A1 +, and CARE – AAA and A1 +. It is also given Moody’s Ba3 (Negative) rating, Standard & Poor’s BBB- (Fixed) rating, Fitch’s BBB- (Negative) rating and Japanese Credit Rating Agency’s BBB + (Fixed) rating.
In addition, the Company’s original funds from time to time in addition to equity decay through a variety of sources, such as the issuance of tax-based and tax-free bonds, term loans from banks / financial institutions, ECBs, internal securities, asset security and lease financing.
Angel Broking said: “Given the fact that the company caters to the Government of India, the company does not face any asset quality issues. Said.
The Union Budget for 2020 proposes a capital expenditure of Rs 1,60,200 crore for the Ministry of Railways, which is the largest allocation for Indian Railways ever. 23 percent of these are toward rolling assets.
“Indian Railways’ capital expenditure is likely to increase for network expansion, decay and safety; most of it is driven by PPP’s new networks, the Dedicated Freight Corridors (DFCs). It contributes 2/3 of its revenues and is losing its share of road transport. Money for rolling assets expands as the network expands, and improved focus on decay, “said KR Choksay.
IRFC’s primary business is financing the acquisition of rolling stock assets, which include powered and powerless vehicles (eg locomotives, trainers, wagons, trucks, flats, power multiple units, containers, cranes, all kinds of trolleys and other items of rolling stock).
It is also in the business of leasing rail infrastructure assets and national projects of the Government of India (collectively, project assets) and lending to other institutions under the Ministry of Railways (MOR). The MoR is responsible for the procurement of rolling stock assets and the improvement, expansion and management of project assets, but the IRFC is responsible for raising the necessary financing for such activities.
The company is registered with the Reserve Bank of India as NBFC (systematically important) and is classified as ‘Infrastructure Finance Company’.
“While valuations look reasonable and with strong asset liability management, we like the company’s business model with low risk and cost. But in terms of growth, we see limited expansion on the margin and return on the equity (ROE) front with no diversification and zero risk capital base,” Hem Securities said .
“Therefore, given the strong business profile of a company with limited growth factors, we offer a long-term subscription rating. But in the short term, we do not expect any major negative changes in share prices after listing,” the broker added.
The Company has reserved market credit for Indian Railways and has played a strategic role in financing the operations of Indian Railways; Indian Railways’ actual capital expenditure in FY2020 was 48.22 per cent to Rs 71,400 crore.
In the financial year 2021, MOR has indicated its intention to borrow Rs 58,000 crore from the IRFC through a letter dated April 10, 2020, but subsequently, the MOR has revised the target by a letter of January 7, 2021 to Rs 62,567 crore from the IRFC.
As the company is funded by the Ministry of Railways, the company maintains a low-risk client profile with nil total passive assets (GNPA). The costs associated with any foreign currency hedging costs or losses and hedging costs for interest rate fluctuations are constructed at the weighted average cost of the debt, upon which the IRFC earns the margin as determined by the MoR. Hem Securities said the company was therefore operating on a low-risk business and cost model.
The company has strong asset liability management, which ensures a minimum asset liability adjustment with the company’s tenure adjustment for advanced and lending. The broker said that with the help of a standard lease agreement from MoR for any shortfall, the money company was well placed to handle the liquidity needs.
The company’s AUM has increased 27 per cent from Rs 1,54,534 crore to Rs 2,66,137 crore since FY18. In the same year, disbursements rose 40 per cent to Rs 71,392 crore from CAGR of Rs 36,722 crore. The company posted NIM at 1.59 percent in FY20, while ROE was up 12 percent in the same year.
As of September 2020, the company’s total AUM comprised 55.34 percent of lease obligations, mainly for rolling stock assets, 2.25 percent of loans to central public-sector enterprises (MOR (other PSU units) under administrative control), and 42.41 percent to leveraged project leases.
The company is adequately capitalized with a tier-1 portfolio of 434 percent of total risk-weighted assets. In addition, it is consistently paying dividends of 5.33 percent with FY20 payments. “An attractive valuation with healthy earnings ratios will make us optimistic about the long-term future of IRFC.
IRFC is expected to enjoy a premium post listing due to its strategic role in financing the growth of Indian Railways, Azkan Global said.